This column originally appeared on Real Money Pro at 8:16 a.m. EDT on Oct. 23.NEW YORK ( Real Money) -- The earnings cliff receives an exclamation point of concern as third-quarter 2012 reports flow. Goldman Sachs reported this morning that of the companies that have provided guidance, nearly 90% have been negative. This represents an "unprecedentedly negative level." We remain in an investment backdrop in which the only thing certain is the lack of certainty, which does not warrant large commitment to stocks. It does, however, provide a great backdrop to opportunistic trading -- something I am committed to over the balance of the year. This morning I wanted to revisit the notion of "the performance chase" that so permeated conversation in the media recently and has been an argument used by many as a reason why the S&P 500 would rise to 1500 or more by year-end. From my perch, it is a straw-man argument. It is bunk and represents a nonsensical reason to own stocks, as evidenced, in part, by the recent descent in stock prices. Earnings drive stocks, not central bankers' money printing or a chase for performance. Let me once again explain why the performance chase makes little sense as a reason for owning stocks. Today there are four dominant investors:
- the individual investor;
- the mutual fund manager;
- the large pension plans; and
- the hedge fund manager.
- The hedge fund community is dominated by large players -- they have been the recipients of the majority of the fund flows in the last five years.
- The general partners in these hedge funds (Omega/Cooperman, Greenlight/Einhorn, Pershing/Ackman et al.) have huge personal stakes in their hedge funds.
- Their market views are established -- they will not change this because stocks are moving higher. That is not the way they think. They are disciplined investors who develop an investment opinion based on company and economic fundamentals, combined with the interest rate and economic outlooks.
- Finally, and perhaps most importantly, these large hedge fund managers have too much respect for their personal wealth and for the money invested by their limited partners to chase the market up or down.